Trust's s.11 tax exemption dispute: ITAT used s.254(2) rectification to rehear appeal without hearing; fresh order set aside.

The dominant issue was whether the ITAT, while exercising rectification power under s.254(2), could effectively rehear the appeal and deny s.11 exemption on a new ground without hearing the trust. The HC held that the earlier dismissal of the trust's appeal contained a "mistake apparent from the record" (including invoking s.11(4A) though it was not in issue and misconstruing the accounting method), so rectification to that limited extent was permissible. However, s.254(2) permits only consequential amendment and not substitution of a fresh substantive order; the ITAT exceeded jurisdiction by replacing its order. The fresh order was set aside and the matter remitted for decision on all points arising from the Commissioner's order, keeping s.11(4A) in view.

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Issues: Whether the Income-tax Appellate Tribunal was right in declining to grant exemption to the assessee-trust on a new ground raised suo motu without affording the assessee an opportunity to be heard.

Analysis: The Tribunal's power under section 254(2) is confined to rectifying a mistake apparent from the record and amending its original order consequentially; it does not permit rehearing the merits or substituting a fresh substantive order beyond the scope of rectification. The impugned substantive order had invoked a new ground (application of section 11(4A)) without confronting the assessee or giving it an opportunity to meet that ground. The Court examined statutory limits on rectification, relevant precedent defining 'mistake apparent from the record', and the nature of the Tribunal's orders, concluding that invoking a new ground without affording the assessee an opportunity amounted to a defect that fell within the ambit of apparent error warranting correction. Consequently, the Tribunal's substitution of a fresh order in the garb of rectification exceeded its jurisdiction, but the specific complaint about denial of opportunity on the new ground required answer.

Conclusion: The Tribunal's action in declining to grant exemption on a new ground raised suo motu without giving the assessee an opportunity to be heard is answered in favour of the assessee.

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